Several years ago, I was enjoying lunch with a couple of experienced financial advisers. During our conversation, I asked whether they give any special advice to single clients who are entering into relationships or heading towards marriage.
One of the advisers chuckled as he recounted a recent conversation he'd had with one of his clients. The client was thinking about getting married, and he'd asked whether his adviser had any thoughts or suggestions in relation to this plans.
The adviser said no, it wasn't part of what he does.
That conversation has stuck with me. Because I take a different view.
Deciding to get married is one of the biggest financial decisions a person can make.
And if you define the role of a financial adviser as helping clients to achieve their financial and lifestyle goals and manage their risks, we should have a thing or two to say about it.
Don't get me wrong: I wouldn't expect a client to change who they want to spend their life with, because of a conversation with a financial adviser.
But it would have been a service to this adviser's client if some of the potential risks and consequences of getting married were pointed out to him, so he could go in with eyes wide open.
It would also be a service to point out some of the opportunities associated with getting married, and suggest how to get on the best possible financial footing with their future spouse.
Think about it:
- There are immediate financial implications associated with getting engaged and marrying. Engagement rings can cost a lot of money (and are they really worth it?). Weddings aren't cheap. Honeymoons can be expensive (but fantastic and well worth it, too!).
- What is marriage, anyway? At its core, marriage is a contract which involves combining homes, families, social, and financial structures. As Susan Pease Gadoua and Vicki Larson explain in The New I Do, you don't need a religious ceremony or any celebration to get married. The only formalities required are legal in nature.
So yes, marriage is a really big financial deal.
In an article for the New Statesman, David Allen Green points out that for contracts as onerous as marriage, it is usual for both parties to "have separate legal advice. I do not mean advice for a prenuptial agreement; I mean legal advice for both parties on entering the nuptial agreement itself".
(Green points out that "Indeed, the world would be a far happier place if marriage was harder and divorce easier. There would be far fewer divorce lawyers if there were more marriage lawyers, just as companies that are realistic and well-advised when they negotiate a contract tend not to get bogged down subsequently in messy litigation.")
- Some other things an adviser might want to canvas:
- What are the assets and liabilities each party brings to the relationship? Are they aware of their respective situations or are they going to be in for a shock? Is one partner going to inherit significant debt by getting married? Or does one of the party have substantially more assets than the other? Is one a member of a wealthy family and are they likely to receive substantial windfalls at some point in the future? Has any of these been discussed?
- As a consequence of any of the things discussed above, it might be prudent for both parties to seek legal advice and consider entering into a contracting out agreement (pre-nup). This is especially the case with "merger marriages" (as opposed to "start up marriages" where both parties bring little to the table).
- Are both partners on the same page financially? Are their financial and lifestyle goals and expectations similar? Is one better at spending money than the other? How has the money situation panned out in practice so far? Is this something that should be addressed before they combine their financial lives?
This is really important. Because if you're young and getting married for the first time, you're at a time in life where the financial decisions you make now can have big ramifications for the future. This can be a risk, but it can also be an opportunity - entering into a relationship can help you to turbo charge your path to wealth.
- Do they want children? How many children? If they have children, what are their expectations relating to childcare? For example, do they both expect that one will take a significant amount of time away from the workforce, or do they have different ideas? Are they aware of the risks and opportunity costs associated with this?
Again, I'm not saying that I expect to change clients' minds about something as important as having kids. But it's valuable to make informed decisions. And as someone who has been paying for childcare for two children for the past four years, I can tell you the financial consequences are significant. (I'm told it doesn't get any cheaper...)
- Does one of them expect to start a business at some point in the future? Are they on the same page regarding the commitment (financial and otherwise) involved and the opportunity costs (in terms of foregone income while getting the business running)?
- Does one partner earn more than the other? What their thoughts and feelings about this? I've had several conversations lately with men whose wives earn considerably more than they do - and speaking as one of those men, it's a good problem to have, but introduces its own tensions.
I've also spoken to people whose income is higher than 99% of the rest of the population, but feel they're not earning much because their partner earns several times more than they do. This isn't something you can address in one conversation, but it is worth making sure this is on the table, rather than a point of contention.
- There's a saying that you should "marry your second wife first". The cost of being in a marriage that doesn't work out can be immense, especially where kids are involved. Are you both committed to making this marriage work, for better and for worse?
What surprises me about this attitude from other advisers - that talking about relationships is outside of the scope of what they do - is that from a purely self-interested perspective, this situation will impact them as well. This adviser will soon find that he won't just have one client - he'll have a new client. I would have thought that getting in the picture sooner than later would be good from the perspective of managing their relationship, too.
I've only scratched the surface! There's much more to come on this very important topic.
Sonnie Bailey can discuss these considerations, and facilitate a conversation between you and your partner, through his business, Fairhaven Wealth.